There are many risks associated with retirement and longevity. Through the right financial plan, many of these risks can be planned for:
Longevity Risk-Outliving retirement resources by living longer than planned.
Excess Withdrawal Risk-Also known as Portfolio Failure Risk. The depletion of retirement assets through poorly planned systematic withdrawals that lead to the premature exhaustion of retirement resources.
Inflation Risk-Also known as Purchasing Power Risk. When the price of goods and services increases in such a way as to impede the client's ability to maintain his/her desired standard of living.
Long-Term Care Risk-When dementia and/or physical impediments restricts a person from performing the activities of daily living and may require him/her to outlay significant resources for custodial or medical care.
Incapacity Risk-As a result of deteriorating mental or physical health, a retiree may not be able to execute sound judgment in managing financial affairs and/or may be unable to conduct his/her financial affairs.
Health Care Expense Risk-Not having adequate medical insurance.
Investment Risk-Losing money in the financial markets.
Asset Allocation Risk-Losing money in the financial markets due to inadequate diversification.
Market Risk-Events cause all stock market prices to fall.
Sequence of Returns Risk-Receiving low or negative returns in the early years of retirement, which will lead to a long-term negative effect on the ability of the retirement portfolio to provide the needed income.
Reinvestment Risk-As higher-yielding fixed income investments mature, the client may be forced to reinvest that principle in a lower-yield fixed income investment.
Forced Retirement Risk-Work ends prematurely because of poor health, caregiving responsibilities, dismissal by the employer, lack of job satisfaction and other reasons.
Business Continuity Risk-The employing business closes and the client is unable to amass the appropriate amount of retirement resources.
Public Policy Change Risk-An unanticipated transition in government programs such as Medicare and/or Social Security that were embedded in the retirement planning process to the point where they will not provide sufficient protection during retirement.
Tax Risk-Significant tax increases or elimination of tax benefits.
Loss of Spouse Risk-Planning and financial hardships that arise upon death of first spouse.
Unexpected Financial Responsibility Risk-When the client acquires aditional unanticipated expenses during the course of retirement.
Liquidity Risk-The inability to have assets available to financially support unanticipated cash flow needs.
Legacy Risk-The inability to meet the philanthropic and/or bequest goals that the client has set.
Financial Elder Abuse Risk-An advisor or family member preys on the frailty of the client, recommends unwise strategies or investments or embezzles assets from the client.
Reemployment Risk-The inability to supplement retirement income with part-time employment due to tight job markets, poor health and/or caregiving responsibilities.
Home Maintenance Risk-The inability or unwillingness of clients to continue household chores and activities they once handled themselves, which may require financial resources to pay for these outsourced activities.
Timing Risk-Also known as Point-In-Time Risk. Considers the variations in sequences of actal events starting with different time periods.
High Debt-Service Risk-Clients retiring with significant mortgage, student loan and/or consumer debt that may erode the resources needed for retirement spending.
Procrastination Risk-Clients started saving for retirement too late.
Rollover Risk-The leakage of money from retirement plans prior to the retirement date.
Retirement-Saving Opportunity Risk-Working for an employer that did not provide a retirement plan.
Inadequate Resource Risk-Clients have not saved enough to provide adequate retirement income.
Unrealistic Expectation Risk-Client makes poor choices because he/she was not properly educated, or remained unaware, about the consequences of insufficient retirement income planning.
